Manufacturing ISM PMI 53.4% for March 2012

New Orders declined slightly, -0.4 percentage points, to 54.5% with 15 industries reporting an increase in new orders and two, Computer & Electronic Products; and Electrical Equipment, Appliances & Components, reporting a new order decrease.

A New Orders Index above 52.1%, over time, is generally consistent with an increase in the Census Bureau's real series on manufacturing orders.

PMI is a composite index on manufacturing. Here's how the ISM defines PMI:

The PMI is a composite index based on the seasonally adjusted diffusion indexes for five of the indicators with equal weights: New Orders, Production, Employment, Supplier Deliveries and Inventories.

Below is the ISM table data, reprinted, for a quick view.

Manufacturing at a Glance March 2012

Index

March

February

% Point Chg.

Direction

Rate

Trend

PMI

53.4

52.4

+1.0

Growing

Faster

32

New Orders

54.5

54.9

-0.4

Growing

Slower

35

Production

58.3

55.3

+3.0

Growing

Faster

34

Employment

56.1

53.2

+2.9

Growing

Faster

30

Supplier Deliveries

48.0

49.0

-1.0

Faster

Faster

2

Inventories

50.0

49.5

+0.5

Unchanged

From Contracting

1

Customers' Inventories

44.5

46.0

-1.5

Too Low

Faster

4

Prices

61.0

61.5

-0.5

Increasing

Slower

3

Backlog of Orders

52.5

52.0

+0.5

Growing

Faster

3

Exports

54.0

59.5

-5.5

Growing

Slower

5

Imports

53.5

54.0

-0.5

Growing

Slower

4

OVERALL ECONOMY

Growing

Faster

34

Manufacturing Sector

Growing

Faster

32

Production, which is the current we're makin' stuff now meter, popped up +3.0 percentage points from last month to 58.3%. Production loosely correlates to the Federal Reserve's industrial production, where the March statistics will be out mid-month.

Now we come to employment, otherwise known as where are the damn jobs? The manufacturing ISM employment index increased +2.9 percentage points to 56.1%. The neutral point for hiring vs. firing is 50.1%.

Below are the BLS manufacturing non-farm payrolls (jobs) for the past decade on the left, in red (March's numbers are out April 6th), graphed against the ISM manufacturing employment index on the right, in blue. The BLS number is simply raw manufacturing jobs tally, from the CES, not taking into account population growth or overall sector shrinkage as well as time lag. One can eyeball a slight correlation in the middle of the decade, yet note the divergence this recovery, starting late 2008.

Inventories slightly increased 0.5 percentage points. The index is at 50%, and moved from contraction to neutral. The ISM claims:

An Inventories Index greater than 42.7 percent, over time, is generally consistent with expansion in the Bureau of Economic Analysis' (BEA) figures on overall manufacturing inventories (in chained 2000 dollars).

Changes in all, not just manufacturing, private inventories changes were the bulk of 2011 Q4's 3.0% GDP, and also manufacturing durable goods increased 2.2% in February, but is still negative for the two month average. The ISM inventories are for March, which doesn't bode well for Q1 2012 GDP (see durable goods link for details).

Supplier deliveries are how fast manufacturers can get their supplies. A value higher than 50 indicates slower delivery times, a value below 50 means the supply chain is speeding up. The index dropped -1.0 percentage points to 48.0% and the ISM reports this it the second month supplier deliveries have speed up.

The last time supplier deliveries registered below 50 percent was in May 2009, when the Supplier Deliveries Index also registered 49.9 percent. A reading above 50 percent indicates slower deliveries.

Backlog of orders increased +0.5 percentage points to 52.5% and is in expansion. Order backlogs are exactly what they sound like, how many new orders have delays in being filled.

Imports decreased -0.5 percentage points to 53.5%. Imports are materials from other countries manufacturers use to make their products.

New orders destined for export, or for customers outside of the United States, plunged -5.5 percentage points to 54.0%, the huge negative in an otherwise moderate report.

Prices declined slightly, -0.5 percentage points, to 61.0%. Prices are what manufacturers pay to make their products.

Customer's inventories decreased -1.5 percentage points to 44.6%. Below 50 means customer's inventories are considered by manufacturers to be too low. Customer inventories, not to be confused with manufacturer's inventories, is how much customers have on hand, or rates the level of inventories the organization's customers have.

The ISM has a correlation formula to annualized real GDP, but they are now noting the past correlation. Notice also that the PMI went to equal weighting in 2008. Annualizing March's data, the ISM get a 3.7% 2012 annual real GDP. The below graph plots real GDP, left scale, against PMI, right scale. One needs to look at the pattern of the two lines to get anything out of this graph. If they match, GDP goes up, PMI goes up, would imply some correlation.

The past relationship between the PMI and the overall economy indicates that the average PMI for January through March (53.3 percent) corresponds to a 3.6 percent increase in real gross domestic product (GDP). In addition, if the PMI for March (53.4 percent) is annualized, it corresponds to a 3.7 percent increase in real GDP annually.

The ISM neutral point is 50, generally. Above is growth, below is contraction, There is some some variance in the individual indexes and their actual inflection points. For example, A PMI above 42, over time, also indicates growth.